Everything You Need to Know About the R&D Tax Credit

What is R&D Tax Credit?

Established in 1981, the Research & Development Tax Credit is a federal incentive that allows companies to reduce income tax liability in the current tax year, and receive a cash refund for taxes paid in the last three years.

Many states have implemented their own version of the R&D Tax Credit, and qualifying businesses can claim both! In 2015, when the Protecting Americans From Tax Hikes (PATH) Act was put into place, the R&D Tax Credit became permanent, which revised qualifications that greatly expanded the eligibility for businesses to qualify. With these changes, qualifying small businesses may claim the Payroll Tax Credit to offset some of their payroll tax liability.

Many businesses are unaware that their daily operations could qualify for a dollar-for-dollar Tax Credit, irrespective of industry or company size.

What activities qualify for the R&D Tax Credit?

● Are you developing or designing new and innovative products or processes?

● Are you improving existing products, processes, or prototypes?

● Are you reviewing the potential of several alternatives or methods during the development or improvement process?

R&D Tax Credit Four Part Test


Each company must meet the criteria for all 4 tests to qualify for the R&D Tax Credit

Business Component: Has the company demonstrated that the information being discovered was to develop a new or improved product, process, computer software, technique, formula, or invention, which is to be held for sale, lease, license, or further used in its trade or business?

Uncertainty: Has the company demonstrated that it tried to learn something new about the product or process being changed in order to improve it and has it demonstrated that the product or process could not be improved without going through this discovery process?

Technology: Can the company demonstrate that its development of a business component relied upon the principles of the physical or biological sciences, engineering, or computer science?

Experimentation: Has the company demonstrated that it went through a process of elimination, trial and error, or other evaluation of alternatives in order to arrive at the new or improved product or process?

Not sure if you qualify? Meet with our team

R&D Tax Scenario Software

This company has developed software for individual organizations focused on serving community needs. They have responded to a growing need for faster, safer, and more secure ways of data sharing & collaboration.

  • Wages $3,637,792
  • Contract Research Expenses $33,602
  • Supplies $0
  • Cloud Service Providers $99,579
  • Total R&D Spent $3,770,973

R&D Tax Scenario Engineering

This company aims to accelerate the success of solar in leading utility-scale energy production by maximizing solar plant value with defensible and actionable reference solar data.

  • Wages $3,136,947
  • Contract Research Expenses $0
  • Supplies $576,520
  • Cloud Service Providers $0
  • Total R&D Spent $3,713,467

Not paying income tax?

You can still qualify for the Payroll Tax Credit. Companies with less than $5 million in gross receipts can use the R&D tax credit to offset payroll taxes up to $250,000 per year.

What is the Payroll R&D Tax Credit?

The Payroll Tax Credit is a subset of the R&D Tax Credit that allows qualifying small businesses to reduce their payroll tax liability.

The R&D Tax Credit can help startups and small businesses offset some of their payroll tax liability. In order to claim the Payroll Tax Credit, companies must meet certain requirements, including qualifying as a Qualified Small Business.

To be considered a Qualified Small Business, your company must not have gross receipts for any years preceding the 5 tax year period ending with the credit year. In addition, the year you are claiming, gross receipts must be below $5M.

Payroll Tax Scenario Software

The Company has developed a unique digital platform designed to help mortgage professionals work and collaborate with lending, title/settlement, notarial, and loan servicing partners.

  • Wages $1,259,980
  • Contract Research Expenses $8,512
  • Supplies $0
  • Cloud Service Providers $0
  • Total R&D Spent $1,268,492

Get the claim you need tailored to your industry needs!

With our 25 years of experience, we’re here to empower the future of your industry.
We ensure you are claiming all relevant tax credits and receiving the maximum benefit, thanks to our exclusive expertise in both tax and sciences.

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FAQs

All you need to know about R&D Tax Credit

Can’t find the answer you’re after? Please contact our team

How do I know if I qualify? keyboard_arrow_down keyboard_arrow_up

A quick call with our expert will determine if you qualify. If you have developed anything new or improved, something based on the hard sciences (engineering, computer science, chemistry, biology, physics, etc.) then it’s worth having a chat!

How long will it take to get my claim? keyboard_arrow_down keyboard_arrow_up

We are always working to make our process as efficient as possible. Once you provide all necessary financial and technical documents to our team, on average, our R&D studies last about 1-2 months, depending on the size and complexity of the study.

Does it increase my chance of an audit? keyboard_arrow_down keyboard_arrow_up

Claiming the R&D Tax Credit does not increase your chances of an audit. However, any time you amend your tax returns, the chance of an audit slightly increases. What’s important is that you have an experienced team that provides audit defense to back you up.

Why is the technical report important? keyboard_arrow_down keyboard_arrow_up

This report details the Research & Development activities being conducted and the expenses associated with all activities. The core of the R&D Tax Credit is being able to tie financial expenses with technical research activity. This nexus is what builds the credit and allows companies to claim the benefit on their tax return. Without this nexus, the credit is null. This is where Leyton’s technical report comes in.  

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